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Passive Investing

investment strategy
Definition
An investment approach that seeks to match market returns by tracking an index, rather than attempting to outperform through active management.

Explanation

Passive investing has grown from a fringe concept to the dominant investment paradigm. Vanguard's John Bogle launched the first retail index fund in 1976; by 2024, passive funds held more US equity assets than active funds for the first time. The case for passive: lower fees (0.03% vs 1.00%), tax efficiency, broad diversification, and the mathematical certainty that the average active manager must underperform the index by the amount of their fees. The case against: passive investors are price-insensitive free riders who don't contribute to price discovery.

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